Reverse stock split and options


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Reverse stock splits are often seen as negative corporate actions because they are a tactic used by companies that have seen their share prices fall into the $6 range and, therefore, run the risk of being delisted from stock exchanges that have minimum share price rules. For example, if a company is listed on the Nasdaq and its shares fall below $6, it runs the risk of being delisted companies sometimes reverse split to increase share price, allowing them to continue to trade on a reputable stock exchange. (See The Dirt On Delisting .)

HP | Investor Relations – Stock split history

Citi
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What is Reverse Stock Split? definition and meaning

A corporate action in which a company reduces the total number of its outstanding shares. A reverse stock split involves the company dividing its current shares by a number such as 5 or 65, which would be called a 6-for-5 or 6-for-65 split, respectively. A reverse stock split is the opposite of a conventional (forward) stock split , which increases the number of shares outstanding. Similar to a forward stock split, the reverse split does not add any real value to the company. But since the motivation for a reverse split is very different from that for a forward split, the stock’s price moves after a reverse and forward split may be quite divergent. A reverse stock split is also known as a stock consolidation or share rollback.

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A reverse stock split is a process whereby a company decreases the number of company stock shares that are available and increases the price per share by combining the current shares into fewer shares.

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The reverse stock split is intended to fulfill the stock price requirements for listing on NASDAQ since the requirements include, among other things, that the Company’s common stock must maintain a minimum closing price per share of $ or higher for five consecutive trading days immediately prior to up-listing.  Before any listing of the common stock on NASDAQ could occur, NASDAQ will need to approve the Company’s application for listing.  The Company believes that it will meet all of the listing requirements for listing the company’s common stock on NASDAQ however, there is no assurance that the Company’s application will be approved.

A secondary benefit of a reverse split is that by reducing the shares outstanding and share float, the stock becomes harder to borrow, making it difficult for short sellers to short the stock. The limited liquidity may also widen the bid-ask spread , which in turn deters trading and short selling.

Companies like to do whatever they can to control the price of their stock. Sometimes company management will drive to boost quarterly numbers, sometimes it will create a marketing and public relations campaign to influence investors and sometimes it will change the number of company stock shares that are available through a reverse stock split.


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